Housing market expected to get even stronger under Trump

It should come as no surprise that former real estate magnate-turned-President Donald Trump would make the housing market rise just by winning the 2016 election. In fact, recent reports show that the country’s biggest builders of American homes; Pulte Group (PHM), DR Horton (DHI), and Lennar (LEN), are all among the top 25 stocks in the S&P 500 since the man took office, seeing prices rise more than 10 percent in just the past two months.

It’s a clear indication that the nation’s leading home builders are confident that more Americans will be buying new homes, and they’re looking forward to a rosy future as consumer confidence grows in tandem.

Lennar’s CEO Stuart Miller noted that the reason his company’s earnings release this week shows an “improving macroeconomic environment following last year’s election” is thanks to “renewed optimism, wage and job growth, and consumer confidence.”

“As a result, our home building operations have gone from slow and steady to a faster-than-expected sales pace throughout our first quarter,” added Miller.

CEO Donald R. Horton told his investors that the D.R. Horton team is producing strong results in fiscal 2017. “In the third quarter, our consolidated pre-tax income increased 17% to $444.5 million on $3.8 billion of revenues, and the value of our net sales orders increased 13%. For the nine months ended June 30, 2017, our consolidated pre-tax income, homebuilding revenues and homes closed increased 21%, 18% and 16%, respectively, and our pre-tax profit margin improved 30 basis points to 11.2%. These results reflect the strength of our experienced operational teams, diverse product offerings from our family of brands and solid market conditions across our broad national footprint,” he noted.

Expecting to growing their revenues and pre-tax profits at a double-digit annual pace, D.R. Horton reportedly had 27,600 homes in inventory at the end of June as well as a hefty supply of owned and controlled lots. “We are well-positioned for the fourth quarter and fiscal 2018,” said Horton.

PulteGroup Inc, which is the No. 3 home builder in the country, reported a better-than-expected quarterly profit as it sold more homes at higher average prices, and its orders got a boost from a strong housing market.

Pulte sells single-family detached homes priced in the range of roughly $100,000 to over $1 million, and noted that the average price of homes climbed 6.3 percent to $390,000 in the second quarter at the end of June. The number of homes they sold also rose, from 4,772 to 5,044.

According to a Reuters poll in May, the U.S. is currently experiencing a chronic shortage of homes, which should lead to a steady demand, forcing home prices to skyrocket in the next few years.

The fact that new orders have increased 12.3 percent in just the last six months means that home builders can expect hefty revenue in the future.

“U.S. housing demand continues to benefit from positive market dynamics including an improving economy and job market, high consumer confidence, low interest rates and a generally limited supply of homes across the country,” said Ryan Marshall, President and Chief Executive Officer of PulteGroup. “Given these strong market supports, we believe housing demand can continue to move higher over the coming quarters.”

Marshall added, “Within this market environment, PulteGroup is successfully executing against its business strategies as we focus on intelligently growing our business while delivering high returns. Consistent with this focus, our second quarter results show orders up 12%, backlog value up 19% and adjusted earnings per share up 27%, while ROE improved 140 basis points to 12.8%.”

New home sales surged more than 6% in February to reach their highest levels in seven months, leading experts to predict that his could be just the beginning of an upturn.

“Taking into account a wide variety of indicators, the housing market continues its march higher. We expect further gains this year,” said Barclays economist Rob Martin in a report about the new home sales figures on Thursday.

The stronger housing market affects other industries, which have already indicated that they are also seeing signs of an uptrend.

Pablo Vegas, executive vice president with the Indiana-based natural gas and electric utility NiSource (NI), said in earlier this month that his company was benefiting from a solid housing market. “We’re not at the peaks of 2007, we’re not at the lows of 2010, we’re actually on an upswing. And the current economic conditions as they look, we think there’s a lot of good opportunity to continue to take advantage of the new construction market,” said Vegas.

The lumber industry is also seeing an upturn, according to Jonathan Painter, CEO of the Westford, Mass.-based pulp and wood products company Kadant (KAI). During his company’s earnings call last month he noted that “the outlook for housing is still quite excellent in North America, adding,”If I look back at what our expectations were for the housing market versus which they turned out, it’s a slower and steadier and basically a longer housing recovery, which is totally fine with me.”